It looks like there’s a worker’s strike out there, with too many job openings and not enough workers to fill them — especially for restaurant stocks. Despite the labor market still remaining well below its highs and the public teeming for a “return to normal,” employers just can’t seem to fill these jobs.
And that’s really what it comes down to: Finding a balance of trying to meet demand with supply. Only in this case, it’s not a product that restaurants are trying to figure out. It’s having enough employees to match with the increase in customers. They don’t want to over hire, but they also don’t want to be short-staffed.
However, even the restaurants looking to hire can’t seem to find enough help. It’s one of the first things the public wants to do as we recovery from the coronavirus pandemic. Going out to eat is a small and simple reward, but one that we didn’t realize how much it meant to us.
With that in mind, let’s look at seven restaurant stocks that could bubble higher amid climbing crowds.
- Starbucks (NASDAQ:SBUX)
- Chipotle Mexican Grill (NYSE:CMG)
- Yum! Brands (NYSE:YUM)
- Cracker Barrel (NASDAQ:CBRL)
- Dave & Buster’s (NASDAQ:PLAY)
- Wingstop (NASDAQ:WING)
- McDonald’s (NYSE:MCD)
Restaurant Stocks to Buy: Starbucks (SBUX)
Pandemic or not, Starbucks remains one of the most popular stops for consumers. It’s a top spot for teens and millennials, while management’s pivot toward markets outside the U.S. have paved the way to tremendous growth.
While Starbucks stock initially tanked during the pandemic, we’ve since seen it surge to new all-time highs. Remember seeing full drive-through lines at Starbucks in the early days of the pandemic? That should have told investors all they needed to know about Starbucks in the long term.
The U.S./North America market is Starbucks’ largest business. However, China is the company’s second-largest market and it remains strong. After the Luckin Coffee (OTCMKTS:LKNCY) blowout, Starbucks was left as the unwavering coffee giant in the country. Further, as China reopened more quickly than the rest of the world, it’s helped lead to a faster-than-expected recovery for Starbucks.
The company continues to drive strong results and margins on its products, while using technology to fuel growth and engagement. As a result, Starbucks is well positioned for the future and should keep on winning.
Chipotle (CMG)
If you want to talk about companies that have leveraged technology in their favor, then look no further than Chipotle Mexican Grill.
At one point, Chipotle was really on the ropes. Well, not necessarily from a liquidity standpoint, but from a public perception standpoint. The company’s food quality was scaring its customers and the stock reacted in kind, ultimately shedding two-thirds of its value over a multi-year stretch.
That was a tough period for investors. But that has all changed now.
As Chipotle has leveraged its online ordering platform and introduced technology into the customer relation portion of its business, sales have been humming. Analysts expect almost 30% revenue growth this year and for earnings to more than double after 2020’s expense-filled year due to Covid-19.
While many investors gripe about the share price and valuation, estimates call for even more earnings growth next year, to the tune of 32%. If it comes to fruition, Chipotle stock should keep on climbing.
Restaurant Stocks to Buy: Yum! Brands (YUM)
There’s a Taco Bell around the corner and it doesn’t matter if I drive by it at noon or midnight, the line is always wrapped around the store.
While Taco Bell may be a favorite among fast-food eaters, Yum! Brands goes beyond that one restaurant brand. It also owns KFC, Pizza Hut, Habit Burger and WingStreet. These operations span globally, with the exception of China, which was spun off a few years ago under the name Yum China (NYSE:YUMC).
Operating under so many different umbrellas can create risk. However, it also creates opportunity. When pizza stock peers gain momentum, it can often drag Yum! Brands along with it. Same with fast-food stocks. If one brand has an issue, the others can help buoy the company and offset some of those losses. Imagine if Chipotle had another brand to help offset the issues it faced a few years ago.
While a global pandemic created additional hurdles, it also created more demand. That demand is forecast to continue into 2021, with revenue estimates calling for almost 13% growth. Better yet, analysts expect double-digit sales growth in each of the next two years.
Clearly investors are bullish too, with shares down just 3.5% from the all-time high.
Cracker Barrel (CBRL)
While fast-food and pizza operators may have enjoyed a boost from the pandemic, sit-down restaurants most certainly did not. Companies like Cracker Barrel saw a huge dent in traffic.
At first, all traffic dried up as most of the country went into intense lockdowns. However, each state has implemented varying degrees of lockdowns and have lifted those measures in various ways. Not all states have operated equally in this sense.
But it doesn’t matter. With the public looking to put the pandemic behind it, a return to normal is all most are asking for. And lately, nothing feels better than sitting down at a table and eating a meal that someone else cooked.
Only recently did Cracker Barrel stock eclipse its pre-coronavirus highs before a slight pullback. That may leave a lot of room to run as Cracker Barrel should enjoy a strong rebound over the coming 12 to 24 months — and possibly longer.
People are anxious to get back out to eat, even if it’s just for some morning flapjacks. Keep an eye on this one.
Restaurant Stocks to Buy: Dave & Buster’s (PLAY)
For a minute there, Dave & Buster’s looked to be in real trouble. Shares fell about 90% from the Q1 high to the March 2020 low. Investors were truly worried about a liquidity event happening here, as business dried up virtually overnight.
You can’t run an arcade/restaurant/bar during the middle of a pandemic! With some time to prepare, Dave & Buster’s would have been in a better position. As we all know though, there was virtually zero time to prepare for what happened in March 2020.
PLAY stock collapsed below $5 as investors feared the worst. Thankfully, that didn’t come to fruition and the stock has been on the mend since.
Just as the public is eager to get back out to eat, they’re eager to do something. For many, that could be going to the movies or taking a trip. For others, it will be heading to Dave & Buster’s. Analysts expect revenue to boom 160% this year and grow another 30% next year. On the earnings front, consensus estimates expect a return to profitability this year and call for more than 700% growth next year. We’ll see if it comes to fruition.
Either way, Dave & Buster’s is back from the brink and looking to run.
Wingstop (WING)
Takeout and delivery did keep some cash coming into the restaurants and it did make our quality of life a little better during lockdown. However, I know customers miss piling into the bar and watching the big game with other fans.
In the pre-pandemic days, a good plate of wings, drinks and big a sporting event was a strong driver for restaurant traffic. While Wingstop was able to pivot and avoid taking a huge loss in 2020, it will benefit from a recovery in traffic.
In-person dining increases the sale of alcohol, which is a big profit margin for restaurant operators. Plus, it will result in increased total sales. Maybe that catalyst will be larger in the back half of the year, with the NBA, NFL, MLB and NHL all playing at the same time (and on time) and with the pandemic further back in the rearview mirror.
As it stands, analysts expect mid-teens revenue growth this year and next year, along with strong earnings growth in both years.
After a big rally off the lows, Wingstop continues to consolidate. Let’s see if we can gain some traction at some point in 2021.
Restaurant Stocks to Buy: McDonald’s (MCD)
Is it the sexiest pick in the world when it comes to restaurant stocks? No, but McDonald’s should be busy in 2021. It’s not that consumers were avoiding this name in 2020 or that it was marred in some sort of controversy. But the company clearly suffered in late Q1 and early Q2 2020 as consumers were hunkered down during quarantine. Further, a lot of consumers stayed inside through the rest of the year, too.
As travel picks up pace and travelers go for road trips (or even on drives to the beach), they will be looking to grab some grub. In that sense, one of America’s favorite fast-food stops will be in high demand this year. However, McDonald’s goes a step further. Because it’s a global brand, it will also benefit from the global reopening, which is lagging behind the U.S. a bit.
The U.S. reopening should give the company a strong jolt, but the global reopening should help create sustained growth in the future.
The coming boost in business shows up in the forecasts, too. Analysts expect 16.5% revenue growth this year to go along with more than 40% earnings growth. In 2022, estimates currently call for double-digit earnings growth again, to $9.55 a share. Let’s not forget, McDonald’s has not only paid but has raised its dividend ever since it started paying it in 1976. That’s more than four decades of dividend increases.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
